British Expats Entering and Leaving the US - Tax
Exfin can provide access to US tax advice for both British resident in the US (or contemplating an assignment in the US) and for American expatriates in the UK who are seeking advice or simply the completion of US tax returns. Contact us using the Inquiry Form below for details of the services available and fees applicable.
The sections below provide a very brief introduction to US tax issues for Australian leaving for the US, and returning to Australia.
US Inbound Issues
Q: What taxes do I pay in the US?
A: There are potentially four levels of taxation on personal income in the United States;
- Federal Income Tax (payable by everyone)
- Social Security Tax (payable by everyone earning salary or remuneration type income)
- State Income Tax (depends on state of residence and work)
- Local Income Tax (depends on the locality of your residence and work)
Q: What are the rates of tax in the US?
Federal Income Tax rates
From 10% to 39.6%. Top rate applies, generally, from $418,400 (Single Taxable Income in 2017).
Social Security Tax
6.2% on first $127,000 (in 2017) plus 1.45% on all earnings.
State Taxes
Various rates apply; some states have no income tax whilst some are as high as 12%. The average is around 5%.
Local Taxes
Generally, not higher than 1 or 2 percent. The major exception is New York City and rates are often indexed each year for inflation.
Q: What is the US tax year?
A: The income tax year in the United States is the calendar year.
Q: What income is taxable in the US?
A. The US taxes its Citizens and individuals, who are resident for income tax purposes, on their world-wide income. Where the income is sourced in a foreign country, the US will allow a credit for the tax paid on that income. Where an individual is the resident of a state, that state is also likely to tax world-wide income but is less likely to allow a credit for the tax paid to a foreign country.
Q: What Tax returns do I have to file?
- Federal Income Tax Return
- State Income Tax Return (if paying State Income Tax)
- Local Income Tax Return (if paying Local Income Tax)
- Possibly both FBAR and FATCA returns
All returns are due for filing and the tax due for payment by April 15 in the following calendar year. Extensions can be obtained, but interest will be charged on any tax paid after April 15. Note that US citizens filing income tax returns whilst resident outside the US, for example in the UK, are entitled to submit their returns up to two months later - by June 15 - although if they have taxes owing they may be charged interest for this period.
U.S. Outbound Issues (for individuals who are not Citizens or Green Card Holders)
There is a requirement for an individual who is leaving the US permanently and is not a Citizen or Green Card holder to file a departing alien income tax return. This must be filed before leaving the country and, if it shows a balance owing, this tax must be paid at that time. If this return shows a refund, the refund is not issued until the final return is prepared and filed after the end of the year.
Individuals who have a Green Card should seek advice before surrendering the Card as there can be ongoing tax consequences arising.
Prior to withdrawing funds from a 401(k) plan or an IRA, professional advice should be sought on the tax consequences in both the UK and the United States.
Any remuneration for US services paid after arriving in the UK may affect your UK income tax liability and we would suggest some advice is sought around the timing/receipt of any income.
If the individual is resident in a state that imposes income tax, advice should also be sought on the effect of leaving on their status in that state.
For those with the necessary time, experience and interest we've also included for download below copies of the UK - USA Double Tax Convention and Explanatory Memorandum:
